The ATO measures the sales generated
by each € of assets. More than the level
of this ratio, what is important is the trend.
But the conclusions derived from it have to
be drawn very carefully.
An improvement
in the ATO may indicate a great deal of efficiency
and creativity in managing and controlling
the company assets. But it may also reveal
that some assets (especially fixed assets)
are not renewed, which may create some long-term
efficiency problems.
A deterioration
in ATO may give a signal of poor asset management
but it may also be the result of an ambitious
program of asset renewal or an aggressive
policy of acquisitions.
In some companies, sales may
not be the best indicator of activity. Some
financial analysts will then prefer the concept
of Added Value, defined as the Production
of the period minus the goods and services
acquired by the firm outside and used during
the same period.
Among these assets, currents
assets, especially Inventories and Accounts
Receivable, may be very heavy. They may sometimes
account for 50 % or more of total assets.
It is therefore crucial to manage and control
these assets efficiently. The next 2 ratios
deal with them :
Sources :
Interpreting
and using financial statements, 1999,
Marc Bertonèche, Ph. D. in Finance
from the Northwestern University, Professor
at the Bordeaux University and at Sciences-PO
Paris, Visiting Professor at Harvard Business
School and Oxford University.
© Bernard Jaquier, Professor Emeritus & Dr Honoris Causa, Lausanne, Switzerland, 2024
